Mr. Flight: What the Minister has just said seems to be the nub of the matter, in that we all understand that the intent is that advisers will disclose to the Revenue schemes that will be become hallmark schemes, but he is also saying that if businesses use hallmark schemes, they will have a number, so they should disclose it. Anything that is not hallmarked will be left with the law, which goes back to what is disclosed, what is
Column Number: 089reasonable tax planning and what is potentially a scheme. If you look at the schedule, you find that virtually everything is to be regarded as a scheme unless it maximises tax. How practical are hallmarks for businesses with a turnover of more than £10 million, and what aspects of their normal tax planning must they disclose? That is still not clear.
The Chairman: Order. Mr. Speaker has asked us to be vigilant about ensuring that all hon. Members stick to the rules. The hon. Gentleman would have been correct in referring to me as ''you'' 30 years ago when I was a tax commissioner, but that is no longer the case.
John Healey: The situation is contrary to the hon. Gentleman's interpretation, and I shall detail the conditions that must be met for a hallmark to be listed. That is likely to be specifically drawn according to particular conditions and is contrary to his wide suggestion that anything that is not the fullest possible payment of tax will become a disclosable activity.
To finish the point about the burdens on business, the high de minimis will keep the additional burdens to a minimum, and businesses that are required to disclose have only to send an outline of their scheme and disclose the hallmarks involved to Customs.
Amendment No. 7 would require the Government to specify the tax advantage that would be obtained through use of a scheme bearing a particular hallmark at a time when they are adding new hallmarks to the law. In other words, it would require the Government to give details of the tax avoidance scheme in which the hallmark features. However, at the time of listing those hallmarks, the Government will not necessarily know the details of the arrangements by which the taxpayer seeks to obtain tax advantage. The very purpose of the hallmarks scheme and the measure is to discover those details, and that purpose would be removed and neutered by the amendment.
Mr. Burnett: Is the Minister saying that the disclosure provisions are so weak and insipid that an educated person in Customs and Excise would be unable to quantify the tax advantage?
John Healey: No. I am going to explain that the purpose of the arrangements is one of the conditions for notification under the scheme. If the hon. Gentleman bears with me, I shall come to that point later.
Amendment No. 8 would change the definition of a ''notifiable scheme'' so that a hallmark scheme is notifiable only when its main purpose is obtaining the tax advantage under the scheme that would be specified under the first amendment. As I have said, the Government will not necessarily know at that stage what the avoidance scheme is or exactly how it obtains a tax advantage.
A scheme is notifiable under the hallmarks provision only if all three of the following conditions are met. First, the main purpose of the scheme, or one of its main purposes, must be the obtaining of a tax advantage for any purpose. Secondly, a person must obtain a tax advantage that includes or is associated with a hallmark provision. Thirdly, the designated hallmarks associated with the scheme must comprise,
Column Number: 090for instance: confidentiality conditions limiting disclosure of a scheme; sharing the tax advantage with another party to the scheme or with the promoter; and fees payable to a promoter contingent on tax savings. Designated hallmarks included in a scheme must comprise: pre-payments between connected parties; funding by share subscriptions or loans between connected persons; construction work associated with property transactions between connected persons and certain offshore suppliers. It is highly unlikely that ordinary commercial transactions will come within all three requirements.
However, some arrangements may have to be reported under the hallmarks provision if the main purpose is to gain a tax advantage but there is, on examination, no tax avoidance. The process allows for that possibility, although we expect that such instances will be few, and that the vast majority of schemes reported are likely to be avoidance. In such instances, a decision will have to be made on whether the scheme is avoidance. That may involve further inquiries or the provision of further information by the business.
Mr. Burnett: Presumably—and I would like the Minister to confirm this—the decision as to whether a scheme falls within the rules is initially made by an official at Customs and Excise. What level of seniority and experience will that person have? Will the decision be appealable, and if so, to whom, or to which court or tribunal?
John Healey: At the risk of going over ground that we have already covered in a previous sitting, I shall explain to the hon. Gentleman that the notification scheme in clause 19 and schedule 2 simply draws to Customs' attention schemes that it would otherwise have to uncover in the normal course of assurance visits. The scheme triggers business as usual for the Customs officer. There will be the same inquiries, examinations, rights of appeal and decisions as there are at present. No change is made to that by the provisions in clause 19 and schedule 2.
The system proposed in the clause and schedule, which amendments Nos. 7 and 8 would severely curtail, is no different than if an avoidance scheme had come to Customs' attention via a VAT visit or through normal correspondence. The hallmarks disclosure provision simply brings to the attention of Customs matters that would otherwise remain hidden or be identified only much later. In all other respects, it is business as usual.
Far from helping the scheme work—or, as the hon. Member for Arundel and South Downs (Mr. Flight) argues, bringing proportionality to the proposal—the amendments would seriously undermine the operation of the measure as the Government intend. It would undermine this element of the Government's anti-avoidance strategy, which plays a vital part in securing revenues and creating a more level playing field for those businesses that fulfil their tax obligations. For that reason, I ask the Committee to reject the amendments.
Mr. Flight: There would not be much point in having a vote on the two amendments, but I will make one or two comments.
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First, in preparing the amendments, I consulted a leading anti-avoidance individual who had been working for the Treasury in that capacity for a long time, and was concerned about the issues that I have raised. The Minister's explanation is not entirely convincing, and there is not anywhere near an understanding out there about how the arrangements will operate. The schedule 2 provisions will operate broadly as I have described with regard to larger businesses. There is the danger of being snowed under, with people protecting themselves from being attacked while not reporting something that they should—that will be the gut reaction of every business. The Government and Customs and Excise are unwise if they do not realise that that is how people will naturally and rightly behave.
Benefit, rather than purpose, is the correct way to measure this. The Minister has said on many occasions that for any scheme its purpose is self-evidently to reduce the tax burden. However, greater specificity is needed about what is being provided for the Revenue under subsequent clauses.
I am left entirely unclear about the duty of a large business in respect of reporting hallmark schemes. If I am left unclear, I am arrogant enough to believe that businesses, too, will not be clear about the arrangements. I beg to ask leave to withdraw the amendment, but I hope that the Minister will think further about the arrangements. No doubt he will discuss them further with outside professionals, but as the schedule stands, the concerns that we have raised are valid.
Amendment, by leave, withdrawn.
The Chairman: May I point out that under Standing Orders, the moment a Member asks permission to withdraw an amendment, I should put that to the Committee? I allowed a little leeway just then.
Schedule 2 agreed to.
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